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Item6 eBook Check my work Check My Work button is now enabledItem 6 Item 6 Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning: ((FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Pay $1,000,000 in cash immediately. 2.Pay $450,000 immediately and the remainder in 10 annual installments of $83,000, with the first installment due in one year. 3. Make 10 annual installments of $145,000 with the first payment due immediately. 4. Make one lump-sum payment of $1,620,000 five years from date of purchase. Required: Determine the best alternative for Harding, assuming that Harding can borrow funds at a 10% interest rate. (Round your final answers to nearest whole dollar amount.)

Solution

Calculate present value :

First option = 1000000

Second option = (83000*6.14457+450000*1) = 959999

Third option = 145000*6.75902 = 980058

Fourth option = 1620000*0.62092 = 1005890

So best option is third option make 10 annual installmets of $145000 with the first payment due immediately.